Oversubscriptions to the offshore oil giant's bond offer reflected a high domestic and regional demand CNOOC - China's dominant offshore oil producer - saw its US$500 million bond issue 14-times subscribed and priced at the lowest yield achieved by an Asian corporate bond issuer, sources close to the deal said. The low yield, which means CNOOC has locked in low cost financing for an extended period of time, was achieved as yields on US treasury bonds hit a 45-year low. In a statement, the company said its US$200 million, 10-year tranche of the bond issue was priced at 4.29 per cent, or 77 basis points above the 10-year US treasury yield. The US$300 million, 30-year tranche was priced at 5.68 per cent, or 118 basis points higher than that of the corresponding US treasury. The 10-year tranche received subscription interest of US$4 billion and was 20-times subscribed, while the 30-year tranche received orders worth US$3 billion and was 10-times subscribed, the sources said. Ben Yuen, head of fixed income of Asia at First State Investments, said the pricing was favourable when compared to the kind of rates US issuers face - 97 basis points above treasury yields for 10-year bonds and 125 basis points for 30-year bonds. He said a main driver for the low yield achieved by CNOOC was keen demand from mainland institutional investors. 'There are only a few US dollar bonds offered by mainland firms, so the supply is very limited and the mainland banks and corporations are keen to look for bonds issued by mainland firms,' he said. Mainland investors accounted for about 25 per cent of total demand for the 10-year tranche, and about 10 per cent of the 30-year tranche, the sources said. Overall, Chinese and Asian investors took up more than 50 per cent of the 7 billion yuan (HK$6.60 billion) order book of the entire deal, they added. Record low yields and a shrunken credit spread faced by corporate borrowers contributed to CNOOC's keen pricing, Mr Yuen said. CNOOC's financial strength and state backing also gave it near sovereign ratings. The firm has a Baa1 rating from Moody's - just a notch lower than China's A3 - and a BBB rating from Standard & Poor's, the same as that of China. CNOOC's reputation as a well-managed and efficient firm has attracted US investor interest, which was particularly drawn to the 30-year tranche. Their demand took up over 30 per cent of the tranche's order book. US pension and insurance funds are big investors in longer-term bonds. CNOOC's 30-year bond is the first issued by a mainland company. A longer-term bond saves the company refinancing costs. Credit Suisse First Boston and Merrill Lynch were the joint bookrunners of the offering. Separately, CNOOC said it had signed a formal agreement to buy a 5.3 per cent stake in Australia's North West Shelf natural gas project for US$348 million. A preliminary agreement envisioned a stake purchase of about 5 per cent.
